Economy in peril due to ‘unconstitutional’ coup-Mangala

Published : 9:09 am November 5, 2018 | No comments so far | |

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Former Finance Minister Mangala Samaraweera, in a statement, said yesterday that, as a result of the illegal and unconstitutional coup, led by President Maithripala Sirisena, Sri Lanka’s economy has been placed in great peril.

He said uncertainty created by this action had triggered an immediate negative impact at a time of tremendous fragility in global financial markets.

The first impact was felt in the stock market. In the 4 days between Monday and Thursday last week the Colombo Stock Exchange (CSE) suffered a net foreign outflow of Rs. 4 billion. For the entire 9 months (270 days) from January to September this year, the total net outflow from the stock market was Rs. 6.1 billion.

Foreigners are selling more and more stocks due to a sharp drop in confidence in Sri Lanka’s economic management. These outflows are putting major pressure on the Sri Lankan rupee in an already fragile global economy.
He said, “Sri Lanka’s Finance Ministry and the Central Bank had worked hard to build fiscal consolidation and macroeconomic stability in the last 2 years – sacrifices were made in order to ensure we gained the trust and credibility of global financial markets since we have such high external debt obligations between 2019 and 2022. This credibility has been eviscerated in the most irresponsible manner by an illegal regime in just one week.

The range of tax cuts made on Thursday will severely undermine government revenue. In a context where we have Rs. 2 trillion worth of debt service in 2019 and our revenue in 2018 was just touching Rs. 2 trillion – any revenue slippage will be disastrous for the government’s ability to meet its financial obligations and to fund public services.

Taking just three of the 15 tax measures proposed – telecommunications levy reduction, VAT threshold increase and taking off the withholding tax on interest income – the revenue impact would be around Rs. 75 billion (almost double the annual expenditure on Samurdhi). Unless of course by removing the 5% final withholding tax they are expecting interest income to be declared as income tax and charge a 24% tax instead of 5% applicable at present.
It is not clear as to how this illegal administration expects to reduce government expenditure in order to balance the budget after these erratic, irresponsible, and populist tax cuts. In the first 6 months of 2018, total revenue was Rs. 925 billion. Expenditure on salaries and wages was Rs. 316 billion, interest payments Rs. 391 billion, welfare Rs. 223 billion. These 3 items alone add up to Rs. 930 billion. Will Mahinda Rajapaksa reduce the size of the public service? Will he cut salaries? Perhaps he will reduce pensions?

In fact with the spike in treasury yields as a result of this coup interest expenditure will be far higher than previously estimated. The only other option is drastic cuts to development expenditure which our government was not willing to do. Simply saying that lost revenue will be caught up by “rationalising cabinet ministers” and “re-examining capital expenditure” is an irresponsible and lazy attempt to deceive the public,” he warned.